WisdomTree’s ETF acts as a kaleidoscope overseeing the mysterious world of AI


In this week’s column, Allan Lane admires the AI education pack that sits behind WisdomTree’s AI ETF…

Recently you may have tuned into the publicity surrounding the latest 'must see' Netflix documentary The Great Hack, which addresses the privacy issues surrounding the use of Big Data and the role played by forecasting algorithms in the electoral arena. It should come as little surprise that there is an increasing supply of new ETFs that track investments of firms that earn some or all of their revenues in the AI space.  

How best to describe these types of companies is tantalisingly hard to pin down.  Even if you study a company’s web site, I suspect you still will not be able to articulate how those firms actually earn a living by implementing AI.  Welcome to the world of 'Black Box' business models, but what a world it is. WisdomTree's ETF is dual purpose, not only can it be used as an investment vehicle, but for those wanting to ramp up their knowledge on the applications of AI, study the ETF’s holdings and accompanying literature and one soon realises here is a real-world AI education pack.

Firstly, what a fantastic job WisdomTree have done.  Ok, it may be early days on the asset gathering front, USD25 million since the end of last year, but with a year-to-date return that recently hit 40 per cent, this launch looks like another poster child for themed Investing.  For an annual management fee of 0.40 per cent, this fund will seek to track an index constructed by the team at Nasdaq comprising nearly 50 companies, which they describe as the enablers, the enhancers and the engaged of the AI arena, and is listed on the London Stock Exchange with ticker WTAI.

This level of performance will be hard to sustain, but what is enduring is that in an era of information overload, the top five holdings of this ETF provide a kaleidoscope that helps map out the AI terrain. Researching the companies that are listed in the holdings list is like entering an Aladdin's cave of next generation technologies.

Top 5 holdings in WisdomTree’s AI ETF

Sector wise, the holdings list is dominated by 90 per cent of the firms from the information technology sector, followed by consumer discretionary at 5 per cent and 3 per cent in healthcare.  Location wise, the US dominates the list with 56 per cent, followed by Taiwan at 14 per cent and then Japan at 6 per cent.  Although the UK was a pioneer in the AI field (think Alan Turing), UK based firms only appear at number seven in the list of holdings.

While it is highly likely that the algorithms and AI methodologies employed by these businesses operate in stealth mode, the companies behind them live in a data sharing world.  With the likes of YouTube and LinkedIn at our disposal, there's not a chance in a million that the companies’ marketing team would miss the trick of not using YouTube to promote their brand.  If you have 100 hours to spare, you too can hear what they have to say. Recalling the adage that a company is made up of its people, there's no better place to get a handle on a company’s talent than by using LinkedIn as a research tool.

The role of LinkedIn and YouTube, and indeed Facebook, has shown to be a central source of data points for those firms looking to know more about the end user, so much like the ‘Catch 22’ moment from quantum mechanics, it is now becoming harder to differentiate between the experiment and the experimenter.  For this reason, it will become even more intriguing as other fund managers look to shine the light on this new area of themed investing.

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